June/July 2006
God's Politics: Why the Right Gets It Wrong and the Left Doesn't Get It.
Mark Karlin interviews Jim Wallis
The Left Hand of God: Taking Back Our Country from the Religious Right
Mark Karlin interviews Rabbi Michael Lerner
New Business Models for a Sustainable Future
Torrey Byles
How the Wealthy Use the Government to Stay Rich and Get Richer
Dean Baker
Will the Major Media Finally Cover the Electronic Election Fraud Issue?
Bob Fritakis and Harvey Wasserman
The Great Turning
Reviewed by Ted Glick
Armed Madhouse
Amy Goodman interviews Greg Palast
Energy Futures
K. C. Golden
Choosing Solar Power Because It's The Right Thing to Do
Jody Woodruff
Reconnecting To Our Essential Nature With Tai Chi
Sean Kelly
Transforming Our Lives and Our Planet Through the Ancient Practice of Qigong
Julia Tucker Interviews Master Mingtong Gu
Rediscovering Who We Really Are With the Persian Sufi Poets
David Fideler
Book
Reviews
Deborah Mokma
Cosmic
Calendar
Salina Rain
New Business Models for a Sustainable Future
By Torrey Byles
“Investors Circle is an extraordinary risk-taking of a community of for-profit social entrepreneurs and the investors who provide them with patient capital. We are beginning to see how angel investors, venture fund managers, foundations and financial institutions can, linked together, become a significant force for social change, supporting entrepreneurial companies that are accelerating the transition to a sustainable economy.” - Woody Tash, chairman of Investors Circle (IC)
In a Quaker-style meeting, 150 people sat quietly in a circle, occasionally speaking as the spirit moved them.
“When I think of the courage I seek,” one member spoke, “to go forward in this time, with no clear models of (fair) business, of (socially responsible) investing, of (sustainable) economy, I realize I must pause whenever I feel that compulsion to make a quick buck, to jump on that opportunity, to eat that particular comfort meal. I pause to feel that compulsive behavior within me, and ask myself, what feelings am I hiding by pursuing this compulsive action? It is through this pause that will reveal for me the psychology behind the madness of ever increasing growth that is wrecking our planet and society.”
Believe it or not, this was a recent gathering of investors, venture capitalists and wealthy individuals who are willing to fund start-up companies and non-profits (“angels”). The open expression of psycho-spiritual truth was, surprisingly, a common occurrence at this event. And, I believe it demonstrates the integral vision that a progressive future contains, where finance is not completely abandoned but incorporated in a new society. And it gives hope and inspiration that there is a groundswell of support across the board for the new, progressive vision of our world.
At this inspiring event the financial community was truly spawning a conscience and a realistic plan for implementing institutional changes needed in the world economy—new bio friendly technologies, fuels, agriculture, health; new social structures, corporations which benefit communities and where all stakeholders win. A reforming of American and world capital markets that gather investable funds and channel them to enterprises. The winds of change are blowing here. A new breed of investor—not to mention entrepreneur—is coming into being, and is growing in number.
Patient Capital, a style of investing that allows longer periods of payback, and/or lower returns as long as the funded enterprise produces benefits in environmental and social domains, seeks non-monetary gains as an important component of the investment objective. Patient Capital verges on philanthropy, granting moneys to non profits.
As one of the banners hanging in the hotel ballroom proclaimed, “To IRR is human, to ERR is divine.” Internal rate of return (IRR) is the standard investor criteria for evaluating an investment. It focuses strictly on the money to be made from a new enterprise, relative to the money invested to get it started. External rate of return (ERR) is the measure that attempts to take in the whole-systems effect of the enterprise—including all the “externalities” of environmental impact like jobs creation, community building, distribution of wealth and income in addition to the future profits of the enterprise.
Patient Capital as a new paradigm of investment not only has a technical side, it is a philosophy that gets to the heart of the imbalance in our contemporary world economic system. The velocity of capital today is unprecedented, and downright scary. Even hardened capitalists such as George Soros, John Bogle (founder of Vanguard mutual funds) and Bernard Lietaer are waving warning signs that wonton economic growth and the growing proportion of the economy devoted to financial intermediation and speculation is destabilizing and not sustainable.
Patient Capital is a term whose meaning gets deeper and has more implications as one explores it. It is not simply the funding of an enterprise or a non-profit where the people behind the funding are flexible and patient. It is about taking an entirely new approach to economic action and development. Speaking to a new consciousness among the investment world Patient Capital embodies the belief that incessant growth is actually the adversary that we are currently facing. It is about aligning our economic system and behavior with natural rhythms and cycles. About incorporating externalities to the economic activities, such as pollution and social injustice, into the overall calculation of investment outcome.
Patient Capital takes its name from the “patient” or slow food movement. Slow Food came into being first in Italy as a reaction to Fast Food—specifically, to the establishment of a McDonald’s in Rome. As a movement, it is more than just about food, it is a protest against the speed and mechanization of life. The founder of the Slow Food movement, Carlo Petrini, addressed the conference and called for the assembled investors to put “slow finance in the service of creating a new social harmony.” His passion was very evident, despite speaking through a translator.
The conference captured the predicament that the world is in—in particular, our present unsustainable economic system, and the need to shift to another way. Despite this awareness, which is held by most of those who were in attendence, there are also uncertainties and the knowledge that there many challenges ahead. Here is a basic rundown:
First, the world economic system is way out of balance. What may have been good 200 years ago—and even that is suspect—is certainly not good today. As one of the panelists remarked, wealth as a result of continual economic growth was okay back in Adam Smith’s day (1776). The world economic system was such a small sub-system relative to the overall planetary system. But today, it is huge and is ruining the planetary system.
From an environmental standpoint, most people can sense the world’s out-of-balance predicament. We are right in the “dog leg” of population explosion. Six billion people today, and expected to double in 50 years. We are poisoning the oceans, the lands, the atmosphere, and yet conventional thinking says, we have only just begun. China and India—together one third of the human population—are gearing up to be middle class consumers on par with Americans and Europeans. What an awful prospect.
There is also the social dimension, the increasingly skewed and inequitable distribution of opportunity, income and wealth. The “social field” is as important to keep in balance as the environmental field. From a social justice and human spiritual basis, the world economic system is out of balance. The way to security is not by vanquishing enemies, but simply not having enemies in the first place.
Second, there is a lot of work to be done to achieve these goals. In the coming years, as we enter the peak oil era and oil prices skyrocket, this infrastructure upon which we depend will increasingly become useless because it will be so exorbitantly expensive to operate. What is required is the creation of a whole new infrastructure—new technology, new products and services to bring to society, construction of new plants and equipment, conversions of existing plants and equipment, new businesses, new services, new livelihoods, and new investment opportunities. All of these innovations will rely on other, more bio friendly sources of energy, which will require a massive investment of capital.
The necessary changes are certainly daunting and the forces of inertia are quite strong. Even for the progressively minded realist, the new vision is hard to see because we are so intimately entangled in the system we are trying to change.
We do not need to throw everything out to reform capitalism. In the words of Ken Wilbur, we can “transcend and include”—transcend the negative, dysfunctional features of capitalism (such as exploitation of nature and people) but include those elements that are good (developing new technologies, using some of the traditional financial vehicles to do so). Our path forward is unclear because we are caught up in the structures of the system. But our evolution is continuous, so what we create includes components of the past with new perspectives and orientations. It is not a complete abandonment of the old way of capitalism. We can’t resort to either/or thinking like we did in the past. No more “are you with us or against us.” We have to be diligent in our personal choices, yet allow for diversity of paths (some will adopt what others reject).
The emerging view is an evolved program—evolved from the past to the present and into the future—an organic whole. As subjects within this evolving process each one of us can only glimpse bits and pieces of the new vision, thus, only through communicating with others will we be able to get our arms around the larger patterns and solutions that work. The operative words are cooperation, collaboration and interdependence.
A further component at work is the need to think outside of the box. As that famous Einstein insight that seems to pop up everywhere in discussion these days, the thinking that created the problem is unable to provide a solution to the problem. We have to transcend our earlier forms of thinking.
It appears that there are three areas that are occurring in the domain of finance that are important to getting outside of the box.
A New Consciousness
By operating first at a psycho-spiritual level our economic choices will reflect the fact that there are consequences “downstream.” Consciousness is all important, and even the subsequent areas of reform are in fact sub-domains of consciousness. At the heart of our global imbalance is the dominant value that one has a sense of self worth only if one is monetarily rich. We need to stop seeking external measures of self worth, stop seeking conspicuous consumption strategies of living, and reevaluate what prosperity means. Of equal importance is having trust in the natural processes of life, while appreciating having more time in our lives, slowing our consumption, simplifying our lives, and improving relationships with loved ones, friends and communities.
But the new consciousness still holds elements of the old consciousness, namely the tools and technologies of rationalism including money and finance. Like improving our financial literacy. Staying in financial balance is important—not spending beyond one’s means, knowing the distinction of spending down capital balances versus income, understanding a viable business in terms of cash flow, assessing the lifecycle cost of a new purchase like an automobile. These accounting and economic distinctions and phenomena must not be thrown out.“Transcend and include” applies to the new money consciousness that is emerging.
New Criteria
New measures to evaluate our economic activities are also needed. How we classify phenomena helps guide how we act. For example, E.F. Schumacher, thirty years ago in his classic, Small is Beautiful, pointed out that fossil fuels should be considered capital assets, not income. Because we consider them to be income we now face the dire consequences of depleting them without being concerned that they will never be restored. How we perceive our world determines how we will act, and constructing our economic indicators, including our accounting filters, makes an important difference to our behavior.
New concepts are emerging. There is a whole new style of social return on investment and “blended models” of enterprise, where the value of seeing underprivileged kids go to college, for example, is equated to the moneys given to the non profit that helps bring this about. And attempts are being made to measure an enterprise’s impact on social and environmental parameters, such as advancement of underprivileged peoples and emissions of industrial processes. Social return on investment strategies continue to use the traditional financial performance measurements of profitability, cash flow, etc. in evaluating overall effectiveness of an enterprise.
New measures are in effect today at varying levels of economic activity and with varying degrees of acceptance:
The Calvert-Henderson Quality of Life Indicators are focused at the national level measuring well-being that go beyond traditional macroeconomic indicators. Dimensions of life examined include education, employment, energy, environment, health, human rights, income, infrastructure, national security, public safety, recreation and shelter.
The Domini Index is used for evaluating specific publicly traded companies to help investors pick socially positive investment. Its criteria is used to evaluate performance in the areas of community, diversity, employee relations, environment, human rights, and product safety and usefulness. Thus, in addition to financial performance indicators, investors can use these to score their investment alternatives.
The Balanced Scorecard, developed by Robert Kaplan and David Norton, is a set of performance criteria designed for company managers. Balanced scorecard criteria cover four broad areas: the education and learning of the workforce, the satisfaction of the customers, the intelligent design of company processes, and the traditional measures of financial performance.
But there are more basic and even simpler forms of measurement, like the Popsicle Index proposed by former Wall Street investment banker and HUD undersecretary, Catherine Austin Fitts. It is a quality-of-life index based on the result of a simple community poll: “What percentage of the people in a community believe that a child can go to the nearest place to buy a popsicle or other treat, and return home alone safely?”
The real purpose of the Popsicle Index is to start a conversation in every neighborhood and village on earth about what it means to feel safe and secure where you live and work. Maybe passersby can be trusted to leave the child alone, but they drive like maniacs through your neighborhood. Maybe the child would be safe, but the parents are concerned about their child being adversely affected by all the junk food marketed to young kids, or by the older kids hanging around the store. Maybe the family is too poor for the child to have the freedom to go buy a treat. Maybe the child will be perfectly safe going to the market alone, but die of a preventable disease for lack of basic healthcare. Or maybe there is no market nearby, or any jobs either, so everyone commutes to someone else’s neighborhood to work and shop and bank.
Meaningful and true measures of our quality of life and impact on our environment and social fabric must be more widely understood and established. This will give us clearer guideposts by which to take action in consuming, investing, and producing.
New Organizational Structures
A third element of the reform of our political economy is the evolution and creation of new legal structures for working together. These include cooperatives, community corp-orations, “benefit” corporations (that lie somewhere between for-profit and non-profit corporations), complementary currencies, employee stock option programs, credit unions, local stock markets, intentional communities, and land trusts.
Even traditional corporate structures can be made “benign” for society. For example, the Solari model has two kinds of owners, and thereby stock types. Local owners have the governance control of the enterprise while a second type of owner has no voting rights and is simply a passive investor. This structure allows the company to access global capital markets, but still be in the control of the local community. Some of the new enterprises in China are using this model.
Complementary currencies are another way to structure interactions among people for desirable social outcomes. Generally, complementary currencies take two basic forms. They can have a commercial purpose, and these include barter club currencies and loyalty programs which are widespread in the world today.
Another kind is the social-purpose currency. These are used to address social issues such as local unemployment, elder care, youth motivation, municipal government volunteer programs, education, and so forth. Today there are over 5000 such currencies in operation around the world.
The operative principle behind any complementary currency is to match unmet needs with otherwise unused resources. A provider of goods and services typically will limit its acceptance of the currency to the zone of its marginal sales. For example, the restaurant owner would allow patrons to use the currency only for off-peak meals and perhaps only for partial payment (like a coupon). An airline allows the currency to be used only to buy airline seats that would normally go empty. A university would provide a handful of enrollments (that would otherwise go unfilled) to students who have provided elder care.
There are systemic and emergent effects from how we design our social instruments and organizational vehicles that we are only beginning to understand. What’s needed here is more experimentation and open discussion.
There is also a caveat in all of these new structures. We shouldn’t believe that new legal arrangements, or financial vehicles, will change our cultural and personal values. In some ways, these structures are alien, causing more disconnection within and among us. They have to be used in balance with the individual’s own commitment to authenticity and integrity. All financial instruments (currency, bonds, stocks, promissory notes, warrants, etc.), as well as the various organizational entities (coops, land trusts, municipal charters, etc.) are simply agreements among people. They are artifacts by which to make explicit our promises to one another and ways by which we interact. The true emphasis is about being clear in our promises while being in integrity about fulfilling them, and courageous about keeping each other to them.
We have come through a couple of important historical episodes, and many are now asking if the only two alternatives are laissez faire or centrally controlled economies. There is a third way, but it starts with each person, from there moving to families and communities.
Torrey Byles is an economist and business development consultant assisting for-profit and non-profit enterprises in marketing communications, financing, and strategy. He is a board member of The Rogue Initiative for a Vital Economy (THRIVE). He lives in Talent, OR and can be reached at tbyles@msn.com.
